REPORT FROM THE U.S.—Cap rates are holding largely steady as hotel values continue their slow increase, hotel transaction experts report.
Sources report that cap rates based on trailing-12-month NOI are stable. Meantime, hotel values have shown a slow, steady increase. Price per key as of September was up 1.6% to $192,000 per key on a year over year basis, according to The Hotel Investment Barometer’s Data Dashboard.
According to HVS’ “2012 United States Hotel Valuation Index,” cap rate based on historical NOI was 5.8 during 2011. That’s an increase from 4.2 during 2010, but still far from the 8.7 cap rate seen during 2009.
“As NOI recovers, capitalization rates also increase, reflecting less upside potential,” according to the report.
Aimbridge Hospitality, which has 87 hotels in its portfolio comprising more than 16,000 rooms, is actively on the lookout for potential deals, said Richard Sprecher, VP of business development. The company is seeking 3- and 4-diamond U.S. full-service hotels branded under major flags such as Sheraton, he said.
Sprecher said downtown and luxury hotel deals are at a cap rate of 6 or 7. And suburban hotel transactions are seeing cap rates in the low teens.
“The cap rates (overall) have gone up a little bit, (but) not much,” Sprecher said. “I don’t think there will be a lot of movement there.”
However, Sprecher said he expects cap rates to move down as the transactions environment—and pricing—heats up.
Jack Corgel, the Robert C. Baker Professor of Real Estate at Cornell University’s School of Hotel Administration, agreed that cap rates are likely to hold the line. Generally, cap rates have been mirroring interest rates, he said.
“They bounce around a little bit, a few basis points up and a few basis points down, but they’re holding strong,” he said.
Corgel also noted the trouble with using cap rates. He said it’s difficult to tell what metric someone is using. Different people could be using different measures, such as trailing-12 or stabilized NOI.
“We can only guess,” he said.